At first, the lobbying effort seemed to be succeeding. By the end of January, a majority of Congress concurred that the army's plight must be relieved promptly. They directed Morris to resolve the salary problems, including back pay. Delegates also promised to push for the passage of a package to give Congress taxation authority.
However, certain unfortunate snags also began to occur: the lump sum payment to many still savored too much of a pension, and a large number of delegates had instructions from their states to adamantly resist any pension plan. It was argued that the states could not pay their own debts and resistance by states with small debts was strong to Congress assuming the debts of all states. Thus, a large incentive to adopt a taxation measure was stymied.
Also, Knox failed to produce requested evidence of deterioration of morale, and some legislators began to suspect the army was being used to twist arms. Then, too, the news from the peace commission was good, the official state of war would end soon, the army could be released, and Congress could step down its activity. In fact, as in times past, some delegates had already departed for home and it was becoming difficult to even keep a quorum together.
Given this state of affairs, the conspirators now proceeded to try to get the officers to overtly refuse to disband. Well aware that Washington would have no part in this attempt to intimidate the Congress, the plotters decided to approach Henry Knox, Washington's chief of artillery who was in sympathy with Federalist aims, had openly complained about Congress, and enjoyed Washington's trust. In early February urgent missives were carried to Gen. Knox in an attempt to enlist him in the effort. However, Knox saw clearly that this amounted to nothing less than mutiny, and refused to help. As he said, " I consider the reputation of the American army as one of the most immaculate things on earth. " In his estimation, the officers should suffer almost any wrong rather than bring discredit upon the Army in any form.
As luck would have it, a high-ranking weak link did exist - Maj. Gen. Horatio Gates. One of his former aides, Col. Walter Stewart, and some hotheaded young officers met with Gates at his official residence, scathingly critical of both Congress and Washington. These zealots longed for a sympathetic senior officer to come forward and lead the army in an open rebellion. Gates, still smarting from his failure to discredit and oust Washington, saw a potential opportunity to even the score. Thus were laid plans aimed at the removal of Washington as well as for a military takeover of the Congress and the country.
Gates, along with several others, was being deceived and used. The devious Federalist faction in Philadelphia was fanning the fire of rebellion with one hand and trying to douse it with water with the other. What they wanted was an unsuccessful uprising of the army, enough to secure their will in Congress over ability to tax, but stopping well short of complete anarchy or military dictatorship. They were playing a dangerous chess game in which Gates, Washington, Congress and the army were to be the pawns.
Hamilton wrote Washington a carefully worded letter in which he discussed the severe crisis then existing in congressional finances and alluded to the general state of affairs within the army and the desirability of continued pressure for the redress of grievances. This letter, along with a second from one of Washington's friends in Congress, Joseph Jones, warning of "dangerous combinations" and "sinister practices" in the army, convinced Washington to conduct his own investigation of the alleged state of affairs. What he discovered alarmed him greatly.
Washington found himself in a dilemma. Should he support his officers and the army and guide this nascent movement to correct obvious wrongs? Or was his first duty to Congress? Like Knox, Washington made a momentous decision: He would not lead what he considered an improper and irregular attempt to rectify those egregious wrongs.
Washington ended up meeting with the group of officers in Newburgh NY & influenced them not to take over the government.
News of Washington's success stopped Congress from declaring war on the Army, which they were considering as a response. The Newburgh incident did scare the Congress into adopting such actions as giving officers who were eligible for half-pay for life five years of full pay and enlisted men four months' pay upon separation. This in turn led to the confirmation of a taxation measure to be administered by the central government. However, it was a watered-down version of needed taxation powers and authority, asking the states for permission to levy a twenty-five year impost. Further, as it turned out, the army was given furloughs instead of being discharged, without immediately thereon receiving any pay, although eventually they did get most of what was due them.